Legal Definitions - uncertified security

An uncertified security, more commonly referred to as an uncertificated security, is a type of investment where ownership is recorded solely through electronic entries in a ledger or database, rather than by a physical paper document. This means there is no tangible certificate (like a stock certificate or bond certificate) that an investor holds to prove ownership. Instead, proof of ownership exists as a digital record maintained by the issuer, a transfer agent, or a financial intermediary such as a brokerage firm.

Here are some examples to illustrate this concept:

• Example 1: Shares in a Publicly Traded Company
  Maria decides to invest in a major technology company by purchasing shares through her online brokerage account. When the transaction is complete, she does not receive a physical stock certificate in the mail. Instead, her ownership of these shares is recorded electronically by her brokerage firm and by the company's transfer agent. Her monthly statements and online account access serve as proof of her ownership, making these shares an uncertificated security.

• Example 2: Government Bonds Held Electronically
  A city government issues municipal bonds to finance a new public transportation project. An institutional investor, a pension fund, purchases a significant amount of these bonds. The pension fund does not receive physical bond certificates. Their ownership is recorded in a central electronic registry managed by the city's financial department or a designated transfer agent. This digital record confirms the pension fund's entitlement to interest payments and the principal repayment, demonstrating that these bonds are uncertificated securities.

• Example 3: Units in an Exchange-Traded Fund (ETF)
  Liam wants to diversify his portfolio and invests in an Exchange-Traded Fund (ETF) that tracks a broad market index. He buys units of the ETF through his investment platform. Similar to individual stocks, Liam never receives a paper certificate representing his ownership of the ETF units. His investment is entirely digital, with his ownership recorded in the fund's electronic system and reflected in his brokerage account statements. The ETF units are therefore considered uncertificated securities.